TMI Blog2021 (1) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Pvt. Ltd . [2020 (5) TMI 440 - DELHI HIGH COURT] As non-availability of segmental data, is a finding of fact, which is not disputed by the Revenue. Therefore, in our opinion, no question of law, much less a substantial question of law, arises in Revenue s appeal. - ITA 247/2019, ITA 357/2019, ITA 652/2019, ITA 710/2019 - - - Dated:- 4-1-2021 - HON BLE MR. JUSTICE MANMOHAN AND HON BLE MR. JUSTICE SANJEEV NARULA Appellant Through: Mr. Nageshwar Rao, Mr. Sandeep Karhail and Ms. Viyushti Rawat, Advocates. Respondent Through: Mr. Ruchir Bhatia, Senior Standing Counsel. ORDER SANJEEV NARULA, J. (Oral) 1. This common order shall dispose of the afore-noted appeals preferred by both the Assessee as well as the Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) challenging the orders passed by the Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) with respect to Assessment Years 2011-12 and 2012-13. For the sake of convenience, the appeals pertaining to each assessment year are being dealt with separately. ITA 247/2019 ITA 357/2019 2. The appeals of the Revenue and the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned ITAT. The Revenue also preferred an appeal against the same order vide ITA No. 691/DEL/2016. The afore-noted appeals were disposed of vide the Impugned order dated 14.09.2018. 4. Both the parties assail the Impugned order, urging substantial questions of law. 5. The main and only plank of submissions advanced by Mr. Ruchir Bhatia, learned Senior Standing Counsel appearing on behalf of the Appellant-Revenue in ITA 357/2019 is that the learned ITAT has erred in excluding the three comparables from the list of comparables, which are: (i) Infosys Technologies Ltd., (ii) Persistent Systems Ltd. and (iii) Wipro Technology Services Ltd. He submits that Persistent Systems Ltd. was included by the Assessee itself in its list of comparables. Having considered the said entity as a comparable in its transfer pricing documentation, and then also accepted by the TPO, the Assessee would be precluded from challenging the inclusion in further appellate proceedings. He points out that the Assessee is not questioning the filters applied by the TPO and adds that the filter applied by the TPO was in fact more stringent than the one applied by the Assessee. He submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company which is apparent from the Annual report of this company. 42. The ld. DR raised a preliminary objection to the effect that once a company has been considered by the assessee as comparable in its TP documentation and the same has been accepted by the TPO, the same cannot be challenged in the further appellate proceedings. He relied on the impugned order to contend that this company was rightly offered by the assessee in the list of comparables and, hence, the same should not be excluded. 43. We are disinclined to sustain the preliminary objection taken by the ld. DR that the assessee should be estopped from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the TPO. It goes without saying that the object of assessment is to determine the income in respect of hich an assessee is rightly chargeable to tax. As an income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is otherwise not chargeable, should be excluded. There can be no estoppel against the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. Product revenue is 7.2% of the total revenue. Thus, it is established that this company is engaged in rendering software development services as well as sale of software products. Even though the percentage of software products in the total revenue is less, yet, the same ceases to be comparable as there is no precise information about the contribution made by the income from sale of software to the total income of the company. In the absence of any segmental information provided by the company in respect of software services, we cannot approve the inclusion of this company in the list of comparables. The same is directed to be excluded. (iv) Wipro Technology Services Ltd. 45. The TPO proposed to include this company in the list of comparables despite the assessee s objection that it has more related party transactions. After going through the Annual report of this company, it is noticed that it was earlier Citi Technologies Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for delivery of technology Infrastructure Services and application development and maintenance services for a period of six years, which also includes the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Once there is a transaction between two associated enterprises, it ceases to be an uncontrolled transaction and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). 47. Coming back to the facts of this company, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee s AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AE. There are no intangibles owned by the assessee and it incurs no expenditure on research development. We find that these distinguishing factors are highly substantial and cannot be ignored or severed from the comparison. The contractual terms of the transaction will be heavily influenced by this and other factors, such as, the overall economic standing of Infosys Ltd. in the market, thereby affecting the cost of the transaction that it enters into. Furthermore, this comparable has been deleted in the case of assessee s sister concern in Fiserv India Ltd., and the same has been upheld by this Court, therefore, we are not inclined to interfere with the order of deletion of Infosys Ltd. as a comparable. 29. As regards the second comparable- Wipro Technology Services Ltd., the comparable was a part of the Citi Group prior to 20.01.2009 and provided services to City Group and was known as Citi Technology Services Ltd. Citi Group entered into a Master Agreement with Wipro Ltd., whereby Wipro acquired 100% interest in Citi Technology Services Ltd. and the comparable was renamed as Wipro Technology Services Ltd. with effect from 01.01.2009. As per the Master Agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable in the benchmarking mechanism for the present assessee, since the RPT filter of this company failed to meet the filter criteria of 25% of RPT, as applied by TPO. The Tribunal in a similarly situated case, deleted Wipro Technology Services Ltd, since it had ceased to be an uncontrolled transaction under Section 92B (2) of the Act. The same order of deletion has been upheld by this Court in PCIT vs. Saxo India Pvt. Ltd., ITA 682/16 vide order dated 28.09.2016 . The assessee therein was engaged in the business of design and development of customized software applications. The relevant paragraphs of the Tribunal s order reads as under: 16.5. Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee s AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the margin of this company also includes the sale of products. Moreover, as pointed out by ld. Counsel, commission paid to agents on sales is also indicative of the fact that there are sale of products. Thus, we find it very difficult to include such a comparable into the basket of comparables for bench marking the assessee s margin and, accordingly, we direct the TPO to exclude this comparable from the list of comparable companies. (iv) Thirdware Solutions Ltd.: - XXXXX From the above it is not clear as to what constitutes the sale of exports, whether it is product or software development services. Revenue from subscription and sale of licence also indicate that there is income from products also which would indicate different business model and consequently the profit margin. Without any proper segmental information regarding revenues from software development and software products, it would be very difficult to accept that the proper comparability analysis can be carried out with the assessee which is purely providing software development services. Apart from above it is noticed that in the case of Fiserve, this comparable company has been excluded precisel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has to be necessarily validated from the annual reports. Since the TPO would have to do this exercise on the basis of the actual data in the report of the comparables, he would surely have the freedom to adopt or reject the comparables. We cannot hold that merely because a comparable clears the filters, its inclusion in the list of comparables is immune to challenge by the assessee. 9. Thus, the arguments advanced by the Revenue are not sustainable. Further, non-availability of segmental data, is a finding of fact, which is not disputed by the Revenue. Therefore, in our opinion, no question of law, much less a substantial question of law, arises in Revenue s appeal. Accordingly, the same is dismissed. 10. Now coming to the appeal filed by the Assessee. In the said appeal, the Assessee raises the following questions of law: (a) Whether impugned order is perverse and bad in law to the extent it upholds substantial variations to determination of arm s length price in transfer pricing study in the face of clear, unambiguous and express finding by Transfer Pricing Officer that It is emphasized that Transfer Pricing study was not rejected at all ? (b) Whether conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready considered. He submits that the impugned order fails to finally decide the issue or provide guidance on questions of law involved in corporate tax dispute of taxability of composite rental income under the heads income from house property or income from other sources . He submits that the ITAT ought to have followed the decision of the High Court in the case of Jay Metal Industries (P) Ltd. v. CIT-V, 396 ITR 194 (Del.) and granted relief finally and conclusively, especially as all the facts are available on record. He further submits that in these circumstances, it would only prolong litigation on an issue which had already been settled by a decision of this Court. We are inclined to agree with Mr. Rao. The learned ITAT has restored the above issues to the AO for a fresh decision following its earlier order dated 28.06.2016 in ITA No. 2058/DEL/2015. The ITAT being a last fact finding authority, is empowered to examine the documents and law placed by the assessee in support of its claim. It is well settled law that remand is not a power to be exercised in a routine manner and should be used sparingly, as an exception only when the facts warranted such course of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... characterization of Appellant tested party for AY 2012-13 and routinely adopting the incorrect and disputed characterization determined in relation to AY 2011-12 as high end software development service provider based on non-appreciation of true and complete facts? (b) Without Prejudice to above, whether impugned order erred in not adjudicating on all comparable companies sought to be included by Appellant in either way of characterization of its services? (c) Whether on the facts and in the circumstances of the case, impugned order is justified in routinely remanding the issue involving head under which composite rental income is taxable i.e., income form house property or income from other sources to Assessing Officer and not finally deciding the dispute by following guidelines laid down in decision of this Hon ble Court? 17. In this case as well, Mr. Rao does not press questions (a) and (b) with the same caveat, as noted above. However, for the reasons as noted above, we partly allow the appeal in ITA No. 710/2019 with respect to question (c) and accordingly remit the matter back to the file of learned ITAT to decide the corporate tax grounds for AY 2012-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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